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The Heat Under Peter Knight

March 15, 1998

Government: INVESTIGATIONS

THE HEAT UNDER PETER KNIGHT

A Gore confidant is at the center of the Portals probe

As Vice-President Al Gore contemplates the White House, Hill Republicans are trying to tie him to a white elephant--the Portals, an office site in a forlorn corner of Washington that has been the object of a 10-year struggle between congressional committees, the Federal Communications Commission, and developers. The Justice Dept. and Congress are investigating whether Tennessee developer Franklin L. Haney, a longtime Gore pal, made sizable campaign contributions to Democrats in return for favorable lease terms on the Portals. And now, one of Gore's closest associates has been drawn into the inquiry.

Investigators want to know whether Haney violated federal laws when he paid $1 million to Peter S. Knight, a Gore confidant and head of the '96 Clinton-Gore Reelection Committee, allegedly for interceding with government officials to win changes to the Portals lease that benefited Haney financially. A Haney spokesman says Haney paid the $1 million but that it was not just for Portals work. The spokesman adds that Haney's $230,000 in 1996 contributions were "handled according to appropriate laws and regulations."

The House Commerce Committee, which oversees the FCC, began its own probe after a previous BUSINESS WEEK story (BW--Oct. 13, 1997). Says Committee Chairman Tom Bliley (R-Va.): "I am puzzled by public statements of Franklin Haney, Peter Knight, and the FCC, which do not correspond fully with some of the key facts we have uncovered." Meanwhile, as Congress and the FCC continue to wrangle over the move to the Portals, taxpayers are paying rent on an empty building--to the tune of $9 million so far.

Knight's involvement in the Portals project dates back to the summer of 1994, when he recommended old friend Robert A. Peck for a job as deputy to then-FCC Chairman Reed E. Hundt. A year later, when Haney, one of Knight's law-firm clients, was deciding whether to help bail out the floundering Portals project, Knight turned to Peck for help in arranging meetings for Haney.

After a year at the FCC, Peck told Knight he wanted a new job. Knight recommended him to the General Services Administration, where he now oversees all government leases, including the FCC's. Peck says in both cases his credentials as a real estate lawyer and legislative aide won him the government jobs, not Knight's assistance.WEB OF CONTACTS. Knight, Peck, and Haney all deny wrongdoing and point to a Feb. 27 General Accounting Office study as vindication. The study concludes that it is in the government's best interest that the FCC move its headquarters to the Portals. And it says that the GSA followed federal procurement rules in selecting the Portals in the first place. But the study also says it did not assess allegations that the GSA's decisions were unduly influenced because those were "not included within the scope of our review." Haney's spokesman says that the developer met with top officials to gather information needed to take the project to the bond market, and that in doing so, he followed all necessary federal procurement rules. He adds that Haney is not a target of a Justice Dept. investigation. "Mr. Haney did not request or receive any favors or interventions in this transaction from Vice-President Gore or his office," says spokesman Kenneth Vest.

This Washington world where business and politics intersect is one that Peter Knight knows well. A former Gore staff chief who ran his boss's failed '88 Presidential bid and his successful '92 Vice-Presidential campaign, Knight personally placed hundreds of job-seekers in sub-Cabinet posts during the transition period before Clinton took office. In mid-1993, he returned to private law practice at what is now Wunder, Knight, Levine, Thelen & Forscey. Except for a brief interruption in 1996 as manager of the Clinton-Gore campaign, he has remained at the firm, where he counts Bell Atlantic Corp. and Lockheed Martin Corp. among his clients. But Knight has continued to advise agencies seeking to fill high-level jobs. That has helped him build a vast network of contacts.

In 1995, Haney, a Chattanooga developer who once worked in the Senate office of Al Gore Sr., retained Knight for the Portals project. Haney had been involved in numerous government real estate deals and was known as a master of selling tax-exempt bonds, backed by government rent payments, to finance his projects. Knight's job: help Haney refinance the Portals complex using tax-exempt municipal bonds.

When he jumped into the Portals deal, Haney found the FCC development bogged down after years of Washington infighting between Congress and the FCC. FCC officials opposed moving to what they considered a barren area in Southwest Washington cut off from restaurants and shops. But to the project's owners, landing the FCC was crucial: They needed the agency to serve as a magnet for telecom law firms, consultants, and lobbyists who would fill three other planned buildings in the complex.

Knight arranged for Peck, who had taken over the Portals project soon after arriving at the FCC, to meet with Haney at Knight's office. Sources say they discussed the FCC intentions about the Portals move. This contradicts earlier statements made to BUSINESS WEEK by the GSA, the FCC, and Haney spokesmen, all of whom maintained that, by the time of Haney's involvement, the FCC's move was a fait accompli. Peck, however, now concedes "there were lots of questions people [including Haney] had about the project. If a project depended on a particular tenant, I would think you'd do everything you could to make sure that that tenant moved in." He strongly denies that he or anyone else did any favors for Haney.

Next, Knight had to persuade the GSA to make key changes in the Portals lease that had been signed before Haney's involvement. Knight arranged for Haney to meet top GSA officials in August, 1995. According to one source at the meeting, Haney's changes included a firm startup date for rental payments, which he needed so he could presell bonds and use the proceeds to finance the project. Documents reviewed by BUSINESS WEEK show that the GSA career staff had serious reservations about granting a fixed date to begin paying rent because of the project's tortuous history.

In October, 1995, Knight arranged a third meeting, this time between Haney and Hundt in the FCC chairman's office. Hundt says he can't recall whether Haney was there that day but remembers meeting former Tennessee Senator and now U.S. Ambassador to China James R. Sasser, who brought "someone else." Sasser represented Haney at the time. Peck also was present. Hundt months ago said he recalled first meeting Haney in late 1996 to discuss changes to the building. In November, 1995, the GSA formally assigned the FCC to the Portals building, a move that surprised many telecom lawyers and FCC staff During his tenure as FCC chairman, Hundt says he was caught in the congressional crossfire over whether to move the agency to the Portals closely watching events."SERVICES RENDERED." Knight's work came to fruition on Jan. 3, 1996, when the Portals partners and the GSA signed a new lease with several key changes, the most significant of which was the July, 1997, startup date for rent payments. Because of that clause, the GSA has had to pay $9 million to date for an empty building. It will have paid a total of $15.7 million by August, when the FCC is scheduled to move in.

On the same day as the lease signing, Knight signed a $1 million bill sent to Haney for "legal services rendered" in 1994 and 1995. Haney's spokesman says the money covered Knight's "strategic and legal counsel" for three years on a dozen projects besides the Portals deal but declines to name any of the others. An October, 1995, letter of engagement signed by Haney and Knight refers to legal work Knight will perform, backdated to June 1, 1995, but no reference is made to work done in 1994. Knight declined to comment on the bill because of the investigation Federal law forbids the payment of contingency fees on government contracts. But Haney's spokesman denies that the fee was contingent on the signing of a new lease. So why was the $1 million invoice written on the same day as the lease signing? Just a coincidence, says Haney's spokesman.By Paula Dwyer in WashingtonReturn to top